The Securities Administrators (CSA) agency, which can be described as Canada's SEC, has published a set of proposed changes to the regulatory requirements for public investment funds with interest in crypto assets.
CSA invites public comments on these proposals before they officially come into force.
The proposed changes aim to protect investors and reduce risks for public investment funds investing in digital assets. These include provisions regarding crypto asset investment restrictions and custody obligations.
Stan Magidson, CSA President and CEO of the Alberta Securities Commission, said:
“We recognize that the existing regulatory framework for public investment funds needs to be adapted to address the unique aspects and risks of crypto assets. “Formalizing these key requirements will provide greater clarity for fund managers as we continue to assess whether a more comprehensive regime is required.”
These proposed changes represent the second phase of an initiative to create a Canadian regulatory framework for public investment funds holding crypto assets. In phase three, the CSA plans to “consult the public on a broader framework.”
Under the proposed changes, only alternative investment funds and non-recourse mutual funds will be allowed to directly buy, sell or hold crypto assets. Investment funds looking to gain exposure to crypto will only be able to do so through these instruments.
For a purchase to be approved, the asset will need to be listed on an exchange recognized by a securities regulatory authority in Canada and be fungible. Assets will also need to be insured and stored in cold wallets, and an annual review of the custodian's internal management by a public accountant will be mandatory.
CSA believes this greater regulatory clarity could facilitate new product development in the space and also enable appropriate risk mitigation measures to be directly incorporated into the investment fund regulatory framework. While the agency aims to provide clarity for those looking to invest in cryptocurrencies, it continues to warn that such investments carry significant risks:
“The CSA reminds Canadians that investing in crypto assets, even through public investment funds, carries higher risk and may not be suitable for most retail investors. In general, investing in crypto assets is a speculative activity and the value and liquidity of crypto assets are highly volatile. “While regulatory oversight of public investment funds plays an important role in investor protection, these measures cannot eliminate all risks associated with investing in crypto assets.”
*This is not investment advice.
